Rainforest Chernobyl Revisited† The Clash of Human Rights and BIT Investor Claims: Chevron’s Abusive Litigation in Ecuador’s Amazon

by Steven Donziger,* Laura Garr & Aaron Marr Page**

A Marathon Environmental Litigation: Seventeen Years and Counting he last time the environmental lawsuit Aguinda v. ChevronTexaco was discussed in these pages, the defen- Tdant Chevron Corporation1 had just won a forum non conveniens dismissal of the case from a U.S. federal court to Ecuador after nine years of litigation. Filed in 1993, the lawsuit alleged that Chevron’s predecessor company, Texaco, while it exclusively operated several oil fields in Ecuador’s Amazon from 1964 to 1990, deliberately dumped billions of gallons of toxic waste into the rainforest to cut costs and abandoned more than 900 large unlined waste pits that leach toxins into soils and groundwater. The suit contended that the contamination poisoned an area the size of Rhode Island, created a cancer epi- demic, and decimated indigenous groups. During the U.S. stage of the litigation, Chevron submitted fourteen sworn affidavits attesting to the fairness and adequacy of Ecuador’s courts. The company also drafted a letter that was By Lou Dematteis/Redux. Steven Donziger, attorney for the affected communities, speaks with signed by Ecuador’s then ambassador to the United States, a Huaorani women outside the Superior Court at the start of the Chevron former Chevron lawyer, asking the U.S. court to send the case trial on October 21, 2003 in Lago Agrio in the Ecuadoran Amazon. to Ecuador.2 Representative of Chevron’s position was the sworn statement from Dr. Ponce Martinez, its lead lawyer in Ecuador for more than three decades: “In my opinion, based upon my vast resources and cadres of loyal and influential operatives in knowledge and expertise, the Ecuadorian courts provide a totally Ecuador built up over decades of operations there, would either adequate forum in which these plaintiffs fairly could pursue their make the case disappear or draw it out endlessly. In 2004, it claims.”3 As a condition of the dismissal, Chevron promised looked as though the case could be an example of how “courts to subject itself to jurisdiction in Ecuador for purposes of the have the potential to re-allocate some of the costs of globaliza- claims, agreed to abide by any judgment from Ecuador’s courts tion — in this case, environmental destruction — from the most subject only to narrow enforcement defenses in the United vulnerable rainforest dwellers to the most powerful energy com- States, and waived statute of limitations defenses.4 Armed with panies on the planet.” Those words were written in this publica- these legally-enforceable commitments, indigenous and farmer tion by one of the authors when assessing the case in 2004, at the communities from Ecuador’s Amazon region, along with their very beginning of the trial in Ecuador that has yet to conclude.5 U.S. and Ecuadorian lawyers, made the bold decision to re-file The ensuing seven years of environmental litigation in the same tort action in Ecuador’s courts. The communities were Ecuador have been far from easy, raising a number of critical committed to seeking redress for human rights abuses that have legal and policy challenges relating to accountability for human decimated indigenous groups and to addressing the broader, rights violations. Most of these challenges stem from Chevron’s related questions of accountability and impunity. Therefore, use of what one observer called a “textbook example of abusive they plowed ahead despite deep concern that Chevron, with its litigation” to forestall resolution of pressing legal claims on which the survival of thousands of people could depend.6 As *Steven Donziger serves as legal consultant to the plaintiffs in the discussed below, Chevron representatives have repeatedly tried Aguinda v. ChevronTexaco case, and has been involved in the litiga- to improperly influence the court and apply political pressure to tion since it began in 1993. coax Ecuador’s government to quash the private lawsuit in viola- **Laura Garr and Aaron Marr Page are also legal consultants for the tion of Ecuador’s constitution.7 Evidence suggests the company Aguinda plaintiffs. is now violating its commitments to a U.S. federal court about its †Steven Donziger, Rainforest Chernobyl: Litigating Indigenous Rights and intentions to abide by a judgment in Ecuador.8 Chevron recently The Environment in Latin America, 11 No. 2 Hum. Rts. Brief 1 (2004). resorted to using a Nixon-style “dirty tricks” sting operation

8 designed to undermine the trial and fabricate evidence of judi- cial misconduct.9 In Ecuador, providing scientific proof has required the communities to assemble and manage teams of environmental experts to produce reports and counter-reports that collectively run into the thousands of pages. The legal side has required just as much effort, not only to determine questions of liability but also to respond to hundreds of motions filed by Chevron to delay the trial over the years. Chevron, having correctly concluded it is far cheaper to litigate than to pay the cost of cleaning up an area the size of Rhode Island, adopted a simple defense strategy: deny, distract, and delay. The company can afford this strategy: it made U.S. $25 billion in profit in 2008 alone. The communities operate under a more terrifying calculus: more than 1,400 cancer deaths due to oil contamination and near-constant exposure to

cancer-causing oil hydrocarbons, resulting in damages up to U.S. Donziger. Courtesy of Steven 10 11 $27.3 billion, according to a court-appointed Special Master. The Shushufindi 38 well site. The communities have been buoyed by the fundamental strength of the underlying scientific and technical evidence. were never treated.16 Worse, two former Texaco lawyers, both Any visitor to the region can see the prima facie case in strik- now employed by Chevron, are facing criminal fraud charges ing terms: old Texaco barrels mired in hundreds of giant, in Ecuador for using a laboratory test that made it impossible to unlined, open-air pits of oily sludge that leach their contents via detect anything more than trace amounts of toxins in the soils pipes built by the oil company into nearby streams and rivers. at highly contaminated sites at the time the company secured Carcasses of cows and birds can often be seen floating in the the release.17 The results of this test were reported to Ecuador’s oil muck at well sites built, operated, and closed — but never government to prove the remediation met the required clean-up cleaned — by Texaco. Evidence demonstrates the company standards. never conducted a single environmental impact study or health At trial, Chevron used soil samples lifted far from the con- evaluation in the decades it operated in the Amazon, even though taminated areas as proof that its operation had no environmental thousands of people lived in and around its oil production facili- impact, but this tactic was documented by the Special Master. ties and relied on rivers and streams that the company used to Chevron’s technical team reported that it could not detect con- discharge toxic waste. Hundreds of waste pits left by Texaco tamination at waste pits that resembled lakes of oil sludge, such have been tested extensively by Chevron, the plaintiffs, and as one at a well site called Shushufindi 38. At this site, Chevron various third parties, revealing levels of total petroleum hydro- reported a “no detect” based on a laboratory analysis of a ran- carbons and heavy metals hundreds and sometimes thousands of dom soil sample of dirt lifted from surrounding forest far away times higher than allowable norms in Ecuador and the U.S.12 In from the waste pit. This sampling result and others like it were fact, Chevron’s own documents prove that, as the communities used as the basis for a technical report submitted by Chevron have long alleged, Texaco never re-injected or safely disposed as evidence to the court that concluded the site posed no risk of “produced water,”13 and instead directed it via an elaborate to human health.18 Chevron also claims that the contamination system of pipes into surrounding streams and rivers which local is really the fault of the current operator of the oil fields, state- residents still use for drinking and bathing.14 owned Petroecuador. However, this has proven to be both factu- The communities have successfully rebutted Chevron’s ally false, according to company records and field samplings defenses as factually false and legally inadequate. For example, that reveal contamination at sites never touched by Petroecuador, after Aguinda was filed in 1993, Chevron decided, without con- and legally insufficient, because the concept of joint and several sulting with the communities, to remediate a small portion of liability applies to remediation cases precisely in order to pre- the contaminated sites in exchange for a release from Ecuador’s vent the general public from having to foot the bill to clean up government. The release expressly excludes the private claims contamination that once benefited a polluter. in Aguinda; yet, as the case was pending in U.S. court, Chevron There have been myriad other obstacles related to Chevron’s argued that the release covered those claims and that the case effort to use its political muscle to terminate the Aguinda case. should be dismissed based on the purported clean-up.15 Though In the United States, the company employs six public relations the U.S. district court never accepted this argument, Chevron firms and roughly one dozen lobbyists to handle the Ecuador still reaps huge public relations benefits and buys years of issue, leading one Congressperson to accuse the company of time by litigating the “release” issue repeatedly in various fora engaging “in a lobbying effort that looks like little more than and using it to claim that the very existence of the lawsuit in extortion.”19 The lobbyists, who include former high-level Ecuador is a violation of its contractual rights. Aside from the Clinton and Bush administration officials, try to influence fact the “release” is not applicable to the claims in Aguinda, the U.S. government to cancel bilateral trade preferences for the clean-up on which it was conditioned appears to have been Ecuador as “punishment” for letting its citizens sue Chevron in a fraud: samples from both parties in the current trial reveal U.S. courts.20 If Chevron were to succeed, Ecuador’s economy that the “remediated” sites are just as contaminated as ones that would lose approximately 300,000 jobs.21 Public relations firms, 9 including Hill & Knowlton (of tobacco industry fame) and major U.S. law firms, is largely an attempt by Chevron to create Edelman Worldwide, try to quash unfavorable stories, sow doubt a “record” that Ecuador’s judicial system is defective to help it about scientific evidence, and control the political environment defeat enforcement of any judgment in the Aguinda case using to influence judicial decisions and public opinion. Their work the same argument. In this “Seven Cases” arbitration, Ecuador includes buying advertisements in U.S. and Ecuadorian news- presented evidence that Chevron deliberately delayed each of papers and on websites attacking the Ecuador trial judge, court the cases — sometimes working no more than one person-hour expert, and the plaintiffs’ representatives. The two Ecuadorian per year on each case. In 2001, to induce the U.S. federal court men who are leading the lawsuit were labeled “environmental to move the Aguinda case to Ecuador, Chevron cited the same con men” in a full-page Chevron advertisement in the San seven cases as evidence of the “fairness and competency” of Francisco Chronicle in 2008, the day before they received the Ecuador’s judiciary. An Ecuadorian trial court recently granted prestigious Goldman Environmental Award.22 Chevron also Chevron a $1.5 million judgment against Petroecuador in one makes significant donations to various U.S. non-profit organiza- of these cases.30 A decision in the “Seven Cases” arbitration is tions to provide a platform to press its views on Ecuador. This still pending. includes providing financial support to the Fund for Peace to set Despite these roadblocks, the communities have kept the up roundtable discussions for Chevron lawyers to opine on how Aguinda trial on track. In 2008, the aforementioned Special the company is being victimized by Ecuador’s court system.23 Master, appointed by the court and accepted by Chevron without In Ecuador, Chevron has repeatedly tried to enlist the U.S. objection as an expert in a previous part of the case, calculated embassy in Quito to advance its litigation interests and to an overall damages figure of U.S. $27.3 billion, roughly equiva- help it dispense with the lawsuit through a separate settlement lent to twenty percent of the company’s market value. The price with Ecuador’s government. Chevron signed a contract with tag, while considerable, is consistent with the clean-up costs Ecuador’s army — historically viewed by indigenous groups for other large environmental disasters around the world.31 as a hostile force — to provide it private security and housing Ultimately a judge will decide questions of liability and dam- during the trial. At one point, the commander of the base on ages. Even if the court finds Chevron liable and lowers the which Chevron’s legal team maintained its office signed a false damages award, something significant is happening in Ecuador: military report, alleging a security threat to the Chevron lawyers some of the world’s most vulnerable indigenous groups and that delayed a critical court-supervised field inspection for six rainforest communities are moving ever closer to having their months.24 Chevron has met on a regular basis with Ecuador’s human rights claims resolved after years of struggle against one presidents during the pendency of the litigation to press its of the world’s largest and most influential corporations. Despite position that the case should be dismissed.25 Finally, Amnesty Chevron’s continued attempts at delay, the trial is nearing the International and the International Commission of Jurists have submission of closing arguments. noted that attorneys for the Ecuadorian communities have been When it became clear that the evidence in the trial against victims of mysterious death threats and robberies.26 Notably, Chevron was building and that the company’s multi-pronged Chevron has refused to join these organizations in condemning strategy to extinguish the case was not working, a Chevron these threats. spokesman announced bluntly to the Wall Street Journal: “We’re On the legal front, Chevron quickly abdicated on its com- not paying and we’re going to fight this for years if not decades mitments to the U.S. federal court once the evidence pointed to into the future.”32 The company put out a press release promis- its culpability. In 2004, as the Aguinda trial was in full motion, ing the plaintiffs a “lifetime of litigation” if they persisted.33 Chevron filed a claim against Ecuador’s government before the Chevron’s General Counsel said he expected to lose the case, but American Arbitration Association (AAA) in New York, seeking vowed that Chevron would “fight until hell freezes over and then a declaration that it was not liable for further environmental skate it out on the ice.” These statements clearly contradicted clean-up based on the release and ordering Ecuador’s execu- Chevron’s earlier promises to abide by a judgment in Ecuador’s tive branch to intervene in the case to immunize Chevron from courts. It became increasingly clear to the plaintiffs that Chevron any liability.27 The same New York federal court that originally intended to play by a different set of rules. It appeared Chevron dismissed Aguinda to Ecuador soundly rebuked Chevron and not only sought to quash the case, but also to kill off the very permanently stayed the arbitration. The Second Circuit denied idea that indigenous communities could empower themselves Chevron’s appeal with a unanimous summary order, and the to vindicate their legal rights. In a startling moment of candor, Supreme Court denied review even after the company hired a Chevron lobbyist interviewed about the lawsuit admitted to former U.S. Solicitor Paul Clement to prepare its petition for Newsweek’s Michael Isikoff: “We can’t let little countries screw certiorari. 28 around with big companies like this — companies that have made big investments around the world.”34 Separately, in 2004 Chevron filed an arbitration claim against Ecuador under the U.S.-Ecuador Bilaterial Investment Treaty (BIT),29 relating to seven lawsuits covering commer- International Arbitration as a “Star Wars”-Style cial disputes with Petroecuador that were filed in Ecuador Defense against Human Rights Claims by Texaco as it was winding down its operations in the early With the mindset expressed by these Chevron officials, 1990s. Chevron alleged it was a victim of “denial of justice” in it becomes understandable how a corporate defense strategy Ecuador because the cases had taken almost fifteen years and can be pushed beyond standard legal and ethical boundaries. no rulings had issued. The costly and lengthy arbitration over From the communities’ perspective, this is exactly what hap- these claims, which is now in its fourth year and involves several pened. Recently, Chevron launched a maneuver that it believes

10 Although clothed in the elegant language of international jurisprudence, Chevron’s underlying construct is ominous: a corporation with almost limitless resources is using an investment treaty as a weapon to engineer a favorable verdict in a human rights trial in which it promised to participate and satisfy any adverse judgment. can render the seventeen-year Aguinda trial a pointless exer- sands of people of their legal rights to seek a remedy against the cise. Relying on the 1997 BIT between the United States and perpetrator of what they consider to be an environmental crime Ecuador, Chevron in September 2009 initiated a closed-door on their ancestral lands. The arbitral panel would be governed by arbitration against the Ecuadorian government claiming it has the UNCITRAL rules, which were created under the auspices of not been treated fairly in the Ecuador trial.35 Chevron argues the United Nations to promote dispute resolution in the context that the release received from Ecuador for its “clean-up” in the of international trade law.38 1990s should absolve it of all liability — even though the release Although clothed in the elegant language of international expressly excludes private claims of the type being asserted in jurisprudence, Chevron’s underlying construct is ominous: a Aguinda and the remedial work on which it is based appears corporation with almost limitless resources is using an invest- to have been fraudulent. Chevron argues that the Ecuador trial ment treaty as a weapon to engineer a favorable verdict in a court, to whose jurisdiction it had agreed to submit when the human rights trial in which it promised to participate and satisfy case was in U.S. federal court, erred in not summarily dismissing any adverse judgment. It is now trying to use international arbi- the claims of the plaintiffs based on the release. Chevron already tration to accomplish what it could not through political pressure had raised the same argument about the release in multiple pub- or proceedings in open court. That this process will wreak havoc lic courts and failed to prevail: the U.S. court in the early years on the rule of law in Ecuador, with negative consequences for of the case, the Ecuadorian court in the Aguinda trial where a other foreign investors in the country, appears to make no dif- decision is pending, and the aforementioned litigation in U.S. ference to Chevron as long as it benefits the company in this federal court over Chevron’s right to the AAA arbitration against instance.39 Ecuador that was permanently stayed. In this latter proceeding, Chevron had hastily withdrawn the same claim regarding the A leading specialist in this area recently noted in a some- release after the U.S. federal judge said it was “highly unlikely” what tinged compliment that Chevron’s claim is “what the state it would prevail on the issue. 36 of the art looks like” as far as corporations taking on states in international arbitration.40 While extreme, Chevron’s maneuver In this latest arbitration notification, Chevron seeks to have is the latest example of a profoundly disturbing trend that could a panel of international jurists — all private citizens not part have devastating consequences for human rights victims seek- of any public judicial body — issue an order instructing the ing recourse against private actors in the courts of their home government of Ecuador to mandate that its constitutionally-inde- countries. There are numerous recent examples of multinational pendent courts determine that Chevron is “not liable” despite the corporations using the international arbitration system along the mountains of scientific and legal evidence in the Aguinda case lines of the Reagan-era “Star Wars Missile Defense” fantasy — a and despite the fact the Aguinda court has yet to rule. Chevron shield to deflect the claims of human rights victims being heard is also trying to burrow its way into this forum even though in national courts around the globe. Under Chevron’s proposed it agreed to the dismissal of the Aguinda action in the United construct, the rulings of these private arbitration panels could be States with only one reservation to contest a judgment — an tailored to trump the rulings of any public court, including the enforcement action in the United States, where it could present highest courts of the countries where the abuses occurred. the same underlying facts of unfair treatment to try to nullify any adverse judgment that it plans to present in the BIT arbitration. In the last two decades, multinational corporations have lined If Chevron gets its way, the BIT arbitral panel would allow it to up to sue states in ways that raise profound public policy, human re-litigate the core claims at issue in the public trial in Ecuador. rights, and environmental concerns. Recently, when El Salvador The communities, by arbitration rules, would not have access denied Canadian gold mining company Pacific Rim a mining to the proceedings, much less the opportunity to be a party.37 permit — after conducting an extensive environmental impact Chevron’s desired result would effectively strip tens of thou- assessment — the case wound up at international arbitration 11 with El Salvador potentially on the hook for hundreds of mil- of circumstances. Creative lawyering has dragged many states lions of dollars.41 Investors have sued Argentina, Bolivia, and into arbitration they never would have considered submitting to Tanzania on claims that raise profound issues with respect to the at the time they signed the BIT. In this “new world of arbitra- fundamental human right to water;42 insurance companies have tion,” often called “arbitration without privity,”49 what was once attacked developing-country plans to institute universal health “gentlemanly” becomes autocratic, with a tiny elite privately care;43 and a white-owned mining company sued South Africa working out deals that can deeply affect the well-being of mil- alleging that the country’s internationally-celebrated affirma- lions of people and the autonomy of entire nations. tive action program discriminates against the company.44 For While investor-state tribunals have on rare occasions awarded smaller or economically disadvantaged countries, these are not injunctive relief, they are usually limited to orders necessary minor matters: for example, the U.S. $353 million award won by to prevent the secreting away or spoiling of assets. Chevron American investor Ronald Lauder against the Czech Republic observes no such limitation in its desire that Ecuador’s executive for alleged “interference” with his Czech TV business equaled branch declare it absolved of all claims in the Aguinda court the entire national health insurance budget of the country.45 case. Historically, unbounded orders of this sort only flowed While Chevron’s BIT case is only designed to evade liability from the “equity” powers of courts of chancery, which were in Ecuador, the move risks pushing international arbitration in known to provide remedies as necessary to “do justice” in the a radically expansive direction that could provide an unprec- eyes of the sitting magistrate. Though formal chancery is extinct, edented level of immunity to multinationals. A successful domestic courts that assert such jurisdiction do so only under human rights or commercial claim against a foreign entity could specific constitutional and statutory grounds, which carefully be snatched away by a private court of arbitrators in which the circumscribe the degree to which those powers can be exercised. party initially bringing suit cannot be heard and has little or no Another worrying feature of the arbitral panels is that they recourse. Chevron’s core claim that Ecuador’s entire judicial sys- have become a major revenue generator, creating perverse incen- tem is broken and therefore denies it due process is a traditional tives. The estimated two dozen private citizen-arbitrators and the human rights claim, yet Chevron is using it to derail a human numerous lawyers who repeatedly take part in these proceed- rights litigation involving the deliberate dumping of billions ings consider themselves members of an informal elite circle, of gallons of toxic waste into a local water supply. Chevron is or to use their words, “The Club.” 50 A typical arbitrator may asserting that, because of the BIT, its rights as an investor trump never have visited the country over which he or she will serve those of domestic constituencies, here indigenous groups fight- as de facto judge and jury and likely will have little apprecia- ing to remedy the despoliation of the ecosystem on which they tion for the policy complexities at stake when the people who are dependent for their survival. are often most impacted are not represented before the panel.51 Whether Chevron’s plan turns out to be “state of the art” is The arbitrators also have a pronounced personal incentive to dependent on how the landscape of arbitration under investment extend their jurisdiction as widely as reasonably possible given treaties unfolds and whether, as a general matter, domestic courts that they are paid by the hour and can reap millions of dollars will treat private arbitral awards as barriers to enforcement of in fees from a single matter. 52 Structurally, the panels seem to foreign judgments. Unless this gathering danger is addressed, favor well-resourced private investors who can afford the best the prospects for future human rights litigation against corpo- legal talent and disfavor the government lawyers running litiga- rations like Chevron will face steep new obstacles. Corporate tion for developing nations. Under the inchoate standards that defendants facing liability in a domestic human rights proceed- govern these proceedings, some arbitrators have ruled in favor ing could seek safe haven in a BIT by offering conspiracy theo- of investors repeatedly across numerous cases. Since there is no ries that describe a “denial of justice” or a similarly generalized database of decisions and little or no public scrutiny, there is no claim, allowing an arbitration tribunal to take control and issue system-wide check on any perceived or actual bias. Once a pan- injunctive orders against the domestic sovereign and its courts. elist develops a pro-investor reputation grounded in a solid grasp of international law, he or she becomes part of a highly coveted pool of candidates who are repeatedly appointed. It is virtually The Gathering Danger of Expansive Jurisdiction of impossible, given the arbitral rules that govern appointments, International Arbitral Tribunals to have a panel where the majority of arbitrators are outside of The modern system of investor-state arbitration evolved “The Club.”53 Chevron’s appointed arbitrator in its hoped-for largely out of a much older system of commercial arbitration BIT case is an example of this phenomenon.54 between private companies. Such arbitration, based on con- tracts between specific parties, was heard by panels consisting While the scope of Chevron’s requested relief is likely of lawyers in private practice and non-lawyer professionals in unprecedented, its actual claims appear tenuous at best. Indeed, the relevant field. It was a “gentlemanly” system of dispute a different tribunal recently rejected a much less sweeping resolution: tribunals, as a practical matter, looked to more or request for injunctive relief against Ecuador made by Occidental less any law they wished;46 established facts “by all appropriate Petroleum. Notably, the tribunal found that injunctive relief could means;”47 and otherwise acted freely to deliver “arbitral justice” be justified only where it was “necessary and urgent” to avoid 55 as between the parties.48 The modern investor-state system, harm that was both “imminent and irreparable.” Chevron will however, lacks the specific consent and clear limitations that have several layers of appeal in Ecuador — which it has vowed 56 made the earlier system palatable: BITs are not specific agree- to exhaust — where it will still be able to fight enforcement ments to arbitrate, but generalized offers to arbitrate certain and raise the same claims that it is asserting before the BIT tri- 57 classes of disputes against certain investors in a wide range bunal. So while having to face judgment in such a high-profile

12 case and answer to an evidentiary record of over 200,000 pages denied by the court. Chevron uses these denials as “evidence” may be disconcerting to Chevron, relief is hardly “necessary and of the court’s bias.64 In another example, Chevron cites a 2007 urgent” as a matter of international law. Nor is there any threat decision granting the motion of the plaintiffs to withdraw a of irreparable harm here; a harm is only irreparable if it cannot request for judicial inspections of some contaminated well be fully compensated by damages, and damages are all that is at sites. The parties inspected 47 sites, including all of the 36 issue. Finally, it is unclear whether Chevron was an “investor” sites Chevron requested; each site revealed significant toxic in Ecuador before the BIT came into force in 1997, since Texaco contamination in soils and water in and around the waste pits. left Ecuador in 1992, a fact which could nullify Chevron’s ability Additional inspections would have been redundant and con- to be covered by the treaty and thus block the arbitration.58 sumed years of time. Given that the plaintiffs had concluded that their burden of proof was met, the court granted the The tenuousness of Chevron’s claims, however, should not motion. Chevron has used this issue as a central feature of its be confused with the viability of its overall strategy. Its purpose BIT arbitration claim. is to use — or abuse, as the case may be — the opportunity afforded by the BIT arbitration to continue to exhaust the Chevron also claims “political interference” in the trial by resources of its adversaries and cast a cloud of confusion over the Ecuadorian executive branch on behalf of the plaintiffs, the proceeding in Ecuador. Even if Chevron loses the BIT case, a claim for which Chevron has not presented a scintilla of it is still acting on its threat to pursue a “lifetime of litigation” actual evidence.65 The company cites comments made by that gains the company years of time and additional profits from Ecuador’s President Rafael Correa criticizing environmental the monies it could collect on capital that otherwise would be damage caused when Texaco was the operator of the oil fields. used to satisfy a judgment. The arbitration could easily take However, Chevron fails to mention that, in the same com- five or more years and consume tens of millions of dollars of ments, which followed a visit to the region, President Correa attorney time for each side, potentially deterring human rights blasted his own state-owned oil company for causing environ- litigants from bringing similar cases in countries where Chevron mental damage, which arguably helps Chevron’s defense that has operations implicated in human rights abuses.59 Effectively it is not responsible. Heads of state have a right, indeed an playing international human rights law and international invest- obligation, to comment on a humanitarian disaster afflicting ment law against one another, the implications of this strategy their own citizens even if there is open litigation related to it, raise profound challenges for both areas of law.60 and many do. Indeed, U.S. Presidents Barack Obama, George W. Bush, and Bill Clinton all have commented on ongoing litigation as a matter of course, without charges that they are From Sour Grapes to “Denial of Justice” interfering with the independence of the judicial branch.66 Chevron claims that the Ecuador trial has been conducted “in total disregard of Ecuadorian law, international standards of fairness, and Chevron’s basic due process and natural rights.”61 Conclusion The evidence suggests that Chevron is attempting to contrive a Cross-border capital flows can bring important economic narrative to undermine the due process rights of the claimants benefits and jobs to both developed and developing countries; in Ecuador to create “evidence” that it can use in a BIT arbitra- in this context, BITs can play a constructive role if designed tion or in a later enforcement action. To this end, the company to protect the interests of the public and third parties who has used its lobbyists to convince the U.S. State Department and may be adversely impacted. The question is how to prevent the office of the U.S. Trade Representative to adopt reporting the BIT regime from being used to further abusive litigation language which seems hand-casted by Chevron’s legal team that tactics that are predicated on a strategy of forum shopping raises doubts about the fairness of Ecuador’s judicial system.62 and indefinite delay. Currently BITs do little to guarantee procedural or substantive fairness to non-investor litigants. Chevron’s claim is built largely on a disconnected series of What has emerged from thousands of separate BITs is a innocuous events along with various incidents fashioned by the patchwork system with seemingly inscrutable arbitration pro- company’s legal team to try to paint a picture of systemic bias. visions. Arbitral tribunals operate unchecked with no formal The Chevron methodology that allows the company to argue that public scrutiny, inviting gamesmanship and abuse. Chevron’s Ecuador’s judicial system is “broken” could make the judiciaries willingness to play musical jurisdictions, all the while con- of the world’s most robust democracies appear politicized and suming the resources of its impoverished adversaries while corrupt. Using Chevron’s strategy, one would be able to con- amassing record-breaking profits (fractions of which could demn the entire U.S. judiciary by pointing to the fact that U.S. pay for a clean-up in Ecuador), threatens to turn the Aguinda judges receive campaign contributions in Texas, a federal judge trial into an epic illustration of corporate impunity. Recent was recently impeached, two judges in Pennsylvania received history shows that citizen-arbitrators have generally been only kickbacks by sentencing juveniles to incarceration, seventeen too willing to play along, pushing the system far past where judges in Illinois were indicted, and the U.S. Supreme Court states — not to mention third parties whose legal claims are arbitrarily decided who would be president in Bush v. Gore.63 In being hijacked into forums where they cannot appear — ever Ecuador, Chevron has deliberately inundated the trial court with thought they would or could venture. Moreover, as the link- repetitive motions that it expects to lose in order to support its ages between investment, development, and human rights central theme. The court decisions cited by Chevron to “prove” increasingly emerge, deeper structural problems that cannot bias in Ecuador all fit well within Ecuadorian and U.S. jurispru- be papered over are revealed in the BIT arbitral process. dence. For example, Chevron as of the time of this writing had filed 29 motions to disqualify the Special Master; each one was

13 of the plaintiffs, jurisdiction in another court from using the BIT to re-litigate the same or similar issues and claims in the arbitral process. Second, BIT arbitral panels might benefit from bifurcation of jurisdictional and merits-based questions. On this point, arbitrators hearing jurisdictional questions must not also hear merits questions, and vice-versa, so there is no incentive to expand jurisdiction in ways that benefit all. Further, all ques- tions of jurisdiction should be decided as a threshold matter to avoid extended proceedings on the merits that turn out to be unnecessary. Finally, just as any public judiciary is held account- able, it might be useful to consider how BIT arbitrators can be monitored to ensure they have the necessary qualifications to ensure competent decision making, transparency, and sensitivity to affected third party concerns. The pool of candidates should By Lou Dematteis/Redux. be expanded beyond the members of “The Club,” so the same Chevron Vice President Ricardo Reis Veiga talks to the press in the arbitrators are not recycled from case to case. In the meantime, Superior Court of Justice in Lago Agrio, Ecuador on the first day of arbitration rules need to be modified to make the hearings the trial against Chevron on October 21, 2003. public upon the request of any interested party; to permit third parties to appear with full rights as parties, including the right A decentralized system that includes more than 2,500 bilat- to appoint an arbitrator, if they can prove a sufficiently strong eral treaties may seem dauntingly hard to reform, but current non-protected interest; and to properly incentivize payments to widespread discontent has already stimulated a fair amount arbitrators so they are not motivated for the wrong reasons to of thought. Ecuador and Bolivia have withdrawn from the expand their jurisdiction to the edge of what is permissible. International Center for the Settlement of Investment Disputes, the World Bank’s international arbitration arm, and have begun Whatever the reforms that are needed, this important area formulating an alternative dispute resolution mechanism that deserves more scrutiny so that the rule of law can better protect would address the broader public interest and function more human rights litigants and better control investors who seek to predictably and transparently.67 The U.S. State Department has use abusive litigation tactics. In Aguinda, the Amazon com- begun reviewing and amending the U.S. Model BIT, which munities will continue fighting for their rights, in whatever often serves as the first draft for BITs between non-U.S. parties. forum they must. The plaintiffs have filed a motion in the same Changes being considered could add transparency and mecha- U.S. federal court where they initially filed Aguinda to enjoin nisms to prevent meritless claims, enhance requirements relat- Chevron from participating in its BIT arbitration on the grounds ing to exhaustion of domestic remedies, increase protections for it violates the binding promises the company made to the U.S. affected third parties, and perhaps move entirely from an inves- court to induce dismissal to Ecuador. Even if the BIT arbitration tor-state to a state-to-state model.68 Likewise, the International is not enjoined and Chevron is granted its ambitious request for Institute for Sustainable Development has formulated an entire injunctive relief, the communities will argue that the Ecuadorian proposed BIT that would address many of these shortcomings.69 court can and should disregard the tribunal’s order and reject Indeed, even an “international investment court” of the sort pro- the government’s interference. There is no basis to conclude that posed by leading academics would go a long way toward clari- an arbitral order in favor of Chevron would have a preclusive fying the proper jurisdiction of investment disputes, the latitude effect on the enforcement of any adverse judgment in another of states to act in the public interest, and the rights available to country. The plaintiffs plan to move to satisfy any judgment affected third parties.70 against Chevron in any of dozens of countries where the com- pany maintains substantial assets. The stakes are enormously What is clear is that none of these proposed reforms goes far high. For Chevron, the “drown the beast in the bathtub” strategy enough to guarantee fairness to persons in the position of the of constant litigation and forum-shopping risks destroying its Aguinda plaintiffs. The unusual circumstances and long history international reputation and ultimately devastating the compa- of the Aguinda matter require the intervention of a U.S. federal ny’s financial picture. For the indigenous groups and rainforest court to enjoin Chevron from violating its previous representa- communities, it means more years of litigation but also a grow- tions that served as the basis for the court to send the case to ing sense of empowerment to achieve what has always been a Ecuador’s courts. Accordingly, both the Aguinda plaintiffs and relatively simple objective — clean-up of their ancestral lands Ecuador are seeking such relief now in the very court where the and rainforest ecosystem — that seems to be evolving into a case started seventeen years ago.71 In terms of the BIT process, legal battle with historic ramifications on the global stage. The the fact Chevron is pushing the envelope so aggressively reveals international legal community needs to fully appreciate these flaws in the arbitration regime that should be corrected. As a stakes to move toward a sustainable future in which the rights start, those reforming the BITs might consider a bright-line rule of investors and those of human rights victims are more justly that prohibits an investor who has sought, over the objections balanced. HRB

14 Endnotes: the Clash of Human Rights and BIT Investor Claims: Chevron’s Abusive Litigation in Ecuador’s Amazon

1 Texaco merged with Chevron Corp. on Oct. 9, 2001, eight years New York’s Recognition of Foreign Country Money Judgment’s Act.”) after the plaintiffs filed claims in U.S. federal court. ChevronTexaco (emphasis added). The NY Foreign Judgments Act allows Chevron Corporation (whose name has since changed to “Chevron”) to raise defenses to avoid enforcement of any adverse judgment announced that it acquired Texaco in a merger transaction while that might result in the Aguinda lawsuit in Ecuador, including the case was ongoing. Press Release, Chevron, ChevronTexaco to mandatory non-enforcement where it can show “the judgment was Begin First Full Day of Global Operations (Oct. 10, 2001) (on file rendered under a system which does not provide impartial tribunals with author). Chevron has since defended the Aguinda action. or procedures which are compatible with the requirements of due 2 Plaintiffs’ Memorandum of Law in Opposition to Defendants’ process of law.” N.Y.C.P.L.R. § 5303 (McKinney 1997). Motion for Summary Judgment on their Counterclaims, Republic 5 Steven Donziger, Rainforest Chernobyl: Litigating Indigenous of Ecuador v. ChevronTexaco Corporation, 376 F. Supp. 2d 334 Rights in Latin America, 11 No. 2 Hum. Rts. Brief 1 (2004). (S.D.N.Y. 2005) (No. 04 Civ. 8378 LBS) (revealing a fax from 6 Santiago Cueto, Ecuador Class Action Plaintiffs Strike Back at Mike Kostiw, an official in Texaco’s Federal Government Affairs Chevron’s Cynical Game of Musical Jurisdictions, Int’l Bus. L. Office, to Texaco officials York LeCorgne and Ricardo Reis Vega Advisor, Jan. 18, 2010, http://www.internationalbusinesslawadvisor. transmitting an English language “Diplomatic Note, Second com/2010/01/articles/international-litigation/ecuador- Draft” stating that “I worked with Amb Teran (Ecuador) on this class-action-plaintiffs-strike-back-at-chevrons-cynical- last Friday. He will deliver to the State Department today.”). The game-of-musical-jurisdictions/ (last visited Feb. 22, 2010); substantive text of the draft was virtually identical to the letter filed see also Chevron Missteps: How Not to Handle Foreign in Aguinda. Edgar Teran served as Ecuador’s ambassador to the Litigation, Int’l Bus. L. Advisor, Sept. 16, 2009, http://www. United States from 1992 to 1996. internationalbusinesslawadvisor.com/2009/09/articles/international- 3 In 2000, lead Ecuadorian attorney for Chevron, Adolfo Callejas, litigation/chevrons-missteps-how-not-to-handle-foreign-litigation/ provided sworn testimony to the U.S. federal court stating that the (last visited Feb. 22, 2010). U.S. judge “should not be concerned about the ability of the courts 7 Chevron, one of the highest-spending lobbyists in D.C., has in Ecuador to dispense independent, impartial justice. . . . In none lobbied the U.S. Trade Representative for years to suspend of the litigation involving TexPet in Ecuadorian courts have there Ecuador’s trade preferences unless the government puts an end been any allegations of unfairness or corruption.” For copies of to the Aguinda trial. The trade preferences are estimated to fourteen affidavits, see ChevronToxico, Examples of Chevron’s provide over 300,000 jobs to the impoverished nation and so High Praise of Ecuador’s Courts, http://chevrontoxico.com/assets/ have been used as a bargaining chip by the corporation against docs/affidavit-packet-part2.pdf (last visited Feb. 15, 2010). See also the government of Ecuador. See Editorial, Trading With Ecuador: Aguinda v. Texaco, Inc., No. 93 Civ. 7527, 1994 WL 142006, at *1 Washington Must Resist Efforts by Chevron to Interfere with an (S.D.N.Y. Apr. 11, 1994); Aguinda v. Texaco, Inc., 303 F.3d 470, Andean Trade Agreement, L.A. Times, Dec. 3, 2009, available at 473 (2d Cir. 2002). http://articles.latimes.com/2009/dec/03/opinion/la-ed-chevron3- 4 See Aguinda v. Texaco, Inc., 303 F.3d 470 (2d Cir. 2002); Petition 2009dec03; Kenneth Vogel, Chevron’s Lobbying Campaign to Stay Arbitration at 5-6, Republic of Ecuador v. Chevron Corp. Backfires, Politico, Nov. 16, 2009, available at http://www. & Texaco Petroleum Co., No. 09 Civ. 9958 (S.D.N.Y. filed Feb. politico.com/news/stories/1109/29560.html. In response to recent 10, 2010) (noting how Texaco, in an effort to induce and ensure efforts, 26 congressmen joined together urging their colleagues dismissal of the Aguinda action, unambiguously represented and not to allow Chevron to use trade preferences as leverage in a promised, both in a verified interrogatory answer and in repeated private litigation. Press Release, Congresswoman Linda Sanchez, submissions to the Court, that it would satisfy any ‘final judgment’ Members of Congress Urge USTR to Ignore Chevron Petition entered against it in Ecuador defined as a judgment after exhaustion on Ecuador Legal Case (Dec. 15, 2009), available at http://www. of all appeal rights in Ecuador,” subject only to those defenses lindasanchez.house.gov/news.cfm/article/595. Though the trade to enforcement provided under the New York’s Recognition of preferences were extended in 2009, it provides a strong example Foreign Country Money Judgments Act (“NY Foreign Judgments of how far Chevron is willing to go to undermine the rule of law, Act”)) (citing Texaco Inc.’s Memorandum of Law in Support of Its and improperly influence governmental officials. See infra note 14 Renewed Motions to Dismiss Based on Forum Non Conveniens and accompanying text. Additionally, Chevron’s public relations and International Comity at 16-17, Aguinda v. Texaco, Inc., 142 firms have taken out numerous advertisements in Ecuadorian F. Supp 2d 534 (S.D.N.Y. 2001) sub nom. Jota v. Texaco, Inc. 157 newspapers attacking the lawyers and judges in the trial as well as F.3d 153, 159 (2d Cir. 1998) (Jan. 11, 1999) (No. 94 Civ. 9266 the independent court expert. See e.g. El Comercio Newspaper, Oct. (JSR))); Texaco Inc.’s Reply Memorandum of Law in Support of Its 5, 2006, Feb. 18, 2009, and numerous others (on file with author). Renewed Motions to Dismiss Based on Forum Non Conveniens and 8 See supra note 4. International Comity, Aguinda v. Texaco, Inc.142 F. Supp 2d 534 sub nom. Jota v. Texaco, Inc. 157 F.3d 153, 159 (2d Cir. 1998) (Jan. 25, 1999) (93 Civ. 7527 (JSR)) at 21 (Texaco explained it “agreed to satisfy any judgments in plaintiffs’ favor, reserving its right to contest their validity only in the limited circumstances permitted by Endnotes continuted on page 78

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